Cap and trade: AFBF economist sees flaws in current legislation

After passing the House, a cap and trade bill continues to be hotly debated in the Senate. Competing analyses on the complex legislation have been released in recent weeks and, depending on the conclusions drawn, touted by proponents and naysayers of the proposed carbon sequestration plan and market.

Count the American Farm Bureau Federation amongst the legislation's naysayers. Bob Young, AFBF chief economist, spoke with Delta Farm Press just before Congress returned from summer recess. The AFBF believes the proposed legislation is flawed in multiple ways and, among other deleterious effects if enacted, will mean increased input costs for farmers in coming decades. Among Young's comments:

On where the legislation stands as of late August…

“The Senate staff members worked quite a bit over the recess. However, it now appears some are saying, ‘Let's go write an energy bill separate from cap and trade.' Whether that's a large enough group to push that forward yet, I don't know. But reading the tea leaves makes me think that's where we're headed.

“I believe we must continue to be vigilant and vocal about this subject.”

The position of Farm Bureau on cap and trade legislation?

“Our biggest concern is this legislation will significantly add to energy costs. With that, production costs for agriculture will rise.

“Proponents of the bill will stand up and say that aloud. The intent is to raise energy costs.

“And we're going to do this with an eye toward lowering global temperatures, or whatever. But when you look at whether a unilateral action on our part will make that happen, even (Lisa Jackson) the EPA administrator says, ‘Nope. Not really.'

“If this is a global problem, we should be talking about a global solution and not one that will just impose costs on the U.S. economy. That's our chief concern: it needs to be a global fix.

“There are reasons we use coal to generate electricity: abundant supply, known technology, reasonably cheap. But by a pen stroke we're going to say that's no longer a cheap energy source? There's nothing in the legislation to plug the hole, to say, ‘Here's how we'll move from where we are today to where we want to be.'

“Proponents of the bill say, ‘We'll not pick winners. We'll let the market decide.' Well, we'll definitely pick losers. Why can't we have that part of the conversation? That's a real challenge the bill has to overcome.

“Beyond that, we have concerns that the initial costs of the bill to the economy aren't necessarily that large because of all the giveaways, carve-outs and other things. But, sooner or later, those carve-outs and giveaways have to go away. That's when the true colors of the bill will come out and it'll be very expensive.”

I understand USDA Secretary Vilsack has taken some heat even after the latest round of analysis by USDA economists…

“If this legislation goes forward, we'll be talking about folks that take land out of production in order to plant trees may end up making more money. But the folks that are left behind will make up a smaller agricultural sector by design. That's the whole purpose of the bill: smaller crop production agriculture and smaller livestock agriculture, as well.

“Analysis by EPA suggests the hog industry could be 20 percent smaller under the legislation. Is that what we want?

“It's one thing for us to talk about strong ethanol demand. (Proponents of the bill) will claim that has the same effect: that grain is siphoned off for energy production instead of it being used for food.

“But understand that under that system, the production side is in place to respond. If you've got a really short crop, the EPA could say, ‘We're going to waive the RFS (Renewable Fuel Standard) rules for next year.' The sector would respond, we'd pick up the pieces and move on. In that scenario we'd be looking at, at most, a six to nine month problem.

“But if we go out and plant trees and permanently retire that dirt, if we end up with a shortfall, what do we do? We're not going to cut the trees down. So the system would be a lot more rigid and fragile, I believe, under cap and trade.”

What about the idea that this legislation will “fix” global warming? Sen. John Kerry recently said, ‘Make no mistake. Catastrophic climate change represents a threat to human security, global stability and even American national security.' Then, he talks about the cap and trade legislation as if somehow it will take care of the problem.

Do you think landowners should have the option of carbon sequestration if they want it — say through private companies — but it shouldn't be used as the shining light on a hill, a solution to global warming? Are the American people being hoodwinked on this?

“The EPA administrator in testimony before the Senate has stated this legislation, by itself, will not change global temperatures. So if the fundamental goal is to (reverse climate change), and this bill won't do that, why are we writing it?

“When you get into the details of the legislation and what it'll do, over the life of the bill the great majority of the reduction in CO2 comes from two places. It comes from the electricity generation sector and from our buying international credits overseas.

“Well, okay, then let's write an energy bill that talks about how we want the future of our electricity generation to look. And let's write a foreign aid bill that will spend $20 billion-plus annually to buy trees in other countries. Let's stop with this cap and trade stuff and impose all these costs of hundreds of billions of dollars on our economy.”

What about the argument that if we don't take this route, the EPA will get involved. And to keep the EPA from mandating changes, we need to pass this legislation so USDA will be in charge?

“Congress isn't going away. Congress will still be there. EPA will have to write the rules; those will have to go out for notice and comment.

“Congress could decide to take action at that point if EPA did something too onerous. The rule-making process is still in place.

“There have been times in the past when EPA has gotten a little too carried away. Congress has reined them in.

“I'm not saying that isn't something to worry about. It is. But there are mechanisms and procedures in place to deal with that. Let's find out what EPA's rules will say. They've been pretty close-mouthed about how they'd actually implement something like that.”

What about bringing China and India to the table? There are claims America needs to lead by example. Many farmers I speak with have major reservations that China, especially, will follow our lead…

“China and India have both been very clear about how they'll behave. Australia's legislature has also been clear about how they'll behave. There's a growing dissatisfaction with this whole approach and the challenges it would cause for the global economy.”

Anything we haven't discussed?

“We're still penning the final numbers, but if this passes, it'll affect the consumer, as well. It'll definitely affect food prices.

“EIA (Energy Information Administration) believes that under the most benign set of assumptions about how the bill would be implemented and the markets function, it would add $500 — in 2007 dollars — in 2030. Food prices for a family would jump at least $125 to $400 by then — again, in 2007 dollars.”

With the health care reform and everything else going on, what are the chances for cap and trade passing? Will the Democrats push for something to pass just to have something to take to the climate change summit in Copenhagen in December?

“Why do we even have to have something to take? Let's just go, sit down and have conversations. Let's see what other countries are willing to do. If they aren't willing to do anything that should be a strong signal to us.

“If they say, ‘We won't do anything until the United States moves,' then we can write legislation based on that. Something with off-ramps and things of that nature built in.

“I just don't see that conference as being a legitimate push for us to say, ‘We've got to go write new law today.'”